Returns On Capital At Adani Ports and Special Economic Zone (NSE:ADANIPORTS) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Adani Ports and Special Economic Zone's (NSE:ADANIPORTS) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Adani Ports and Special Economic Zone:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = ₹120b ÷ (₹1.2t - ₹176b) (Based on the trailing twelve months to March 2024).

So, Adani Ports and Special Economic Zone has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Infrastructure industry.

View our latest analysis for Adani Ports and Special Economic Zone

In the above chart we have measured Adani Ports and Special Economic Zone's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Adani Ports and Special Economic Zone for free.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 119% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Adani Ports and Special Economic Zone's ROCE

In the end, Adani Ports and Special Economic Zone has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 251% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 2 warning signs for Adani Ports and Special Economic Zone you'll probably want to know about.

While Adani Ports and Special Economic Zone isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.